Employee rights guide

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There are a number of forms of work engagement but there are three types of employment status under which individuals currently provide their services in the job market: employee, worker and self-employed independent individual.

The employment status of an individual is important for a number of reasons particularly as certain important legal rights only apply if an individual is an employee. 

The Employment Rights Act 1996 (ERA) defines an employee as:

“an individual who has entered into or works under (or, where the employment has ceased, worked under) a contract of employment”. 

A contract of employment is further defined as:

“a contract of service or apprenticeship, whether express or implied and (if it is express) whether oral or in writing”.

A contract of service is distinguished from a contract under which a person gives service as an independent contractor under a contract for services. 

The terms contract of service” and contract for services” carry no statutory definition and the category into which a particular contract falls is determined according to the particular facts. At the most basic level under a contract of service, a person agrees to serve another, whereas under a contract for services they agree to provide certain services to the other. 

However, that simple formulation is the start, not the conclusion, of the legal analysis. The question of whether a person operates under a contract of service is often both a question of fact and a question of law.

Employment status tests

Case law has identified a number of relevant factors that may indicate whether a person is engaged as an employee.

  • Personal service. In order to be an employee, the individual must be obliged to provide their services personally. If the individual is entitled to provide a substitute to do the work, this may point away from an employment relationship. However, the absence of a right of substitution will not necessarily make the situation one of employment. Some contracts may state that there is a right of substitution and that the individual may engage helpers. If an individual has a right to send a replacement or engage a helper, and particularly if the individual has to pay any replacement or assistant, this would be an indicator of self-employment.
  • Mutuality of obligation. As a minimum, in an employment relationship, there must be an obligation on the part of the individual to provide his or her work or skill and the obligation on the part of the employer to pay the individual for that service.
  • Right of control. The employee must be subject to a certain degree of control by the employer, although control need not be exercised in practice. It is the right of control that matters. This control may take the form of the way in which an individual performs their services, what tasks have to be performed and when and where they must be performed. Therefore, for example, an employee will usually be expected to work set hours each day or week. An independent individual is more likely to have the freedom to work when and where they want.
  • The fact that an individual may be told how to perform duties will usually be seen as a strong pointer to employment but, where the individual is an expert the absence of this aspect of control would probably not be seen as that significant.
  • Equipment. A self-employed individual would generally provide whatever equipment is needed to do the job. In contrast where an individual is provided with the necessary equipment and materials that would point to employment.
  • Financial risk. Individuals who risk their own money, for example, incurring significant amounts of expenditure on training in order to obtain the skills needed, which are used in subsequent engagements are less likely to be employees. Self-employed individuals may also be required to rectify unsatisfactory work in their own time for no additional reward. Financial risk could also take the form of quoting a fixed price for a job, with the consequent risk of bearing the additional costs if the job overruns. The risk of making a loss is a very strong indicator of self-employment and can be decisive on its own.
  • Opportunity to profit. Similarly, a person whose profit (or loss) depends on the capacity to reduce overheads and organise work effectively is more likely to be self-employed. People who are paid by the job will often be in this position.
  • Length of engagement. The length of an engagement is unlikely to be determinative in itself with regard to an individual's employment status. However, it should be noted that it is more likely that an employee will have an open-ended contract. The shorter the assignment and the more clients worked for in a tax year, the more likely it will be self-employment.
  • Integration. If an individual is “part and parcel” of a client's organisation, they are more likely to be an employee. Take for example someone taken on to manage a client's staff, they would normally be seen as an integral part of the client's organisation with the result that this would be seen as a strong indicator of employment.
  • Employee-type benefits. If an individual is entitled to benefits such as paid leave, membership of firm's pension scheme, right to car park space and canteen facilities, this will be a good indicator that an employment relationship exists. A contract of employment may also contain access to a grievance procedure and the individual may be subject to disciplinary procedures. However, the absence of such benefits will not be determinative − in particular, it may simply reflect the intention of the parties that the individual be self-employed.
  • A right to terminate an engagement for a reason other than serious breach, by giving notice of a specified length, may be viewed as indicative of a contract of employment. However, it would probably be only a minor factor.
  • Mutual intention. The intention of both parties can be decisive where the factors pointing to employment and to self-employment are evenly balanced. However, the labels the parties use for example that an individual is not an employee will not, without more, be determinative.

Statutory employee rights

Following a full analysis of the working relationship taking into account these factors, it may be found that the individual should be classified as an employee. The result will be that the individual will have the benefit of a number of statutory employment rights. These include rights to:

  • National Minimum Wage or National Living Wage
  • A written statement of particulars of employment within 2 months of starting employment
  • An itemised payslip.
  • Protection against unlawful deductions from wages.
  • Protection against discrimination
  • Daily and weekly rest breaks
  • A limit on average hours of 48 per week over a 17 week reference period 
  • Paid holiday 
  • Unpaid time off to attend trade union activities
  • Unpaid time off to look after dependents in an emergency
  • Paid time off for antenatal care 
  • Statutory maternity leave
  • Paternity leave
  • Adoption leave
  • Shared parental leave
  • Parental leave
  • Notice of dismissal 
  • Written reasons for dismissal in certain circumstances
  • To be accompanied by a trade union representative in a disciplinary or grievance hearing
  • Guarantee payments when laid off
  • Equal pay with comparable employees of the opposite sex
  • Request flexible work
  • Protection against unfair dismissal
  • Redundancy pay 

Worker rights

In employment law, the question of employment status has been blurred in recent years by the evolution of the status of the worker”, a creature created by statute. 

A worker is defined as:  

“an individual who has entered into or works under (or, where the employment has ceased, worked under): A contract of employment; or any other contract, whether express or implied and (if it is express) whether oral or in writing, whereby the individual undertakes to do or perform personally any work or services for another party to the contract whose status is not by virtue of the contract that of a client or customer of any profession or business undertaking carried on by the individual.

The same relevant factors apply when deciding if an individual has worker status. The test is easier to pass through. It has been described as being set at a lower bar than that which applies to employee status.

While workers have less extensive employment protection rights than employees, some of the statutory employment protections above will cover workers as well as employees. In particular the rights to: 

  • National Minimum Wage or National Living Wage
  • Protection against unlawful deductions from wages.
  • Protection against discrimination
  • Daily and weekly rest breaks
  • A limit on average hours of 48 per week over a 17 week reference period 
  • Paid holiday 

These are all rights that a worker or an employee can claim. 

Recent developments

Much of the recent case law regarding employment status in the gig-economy has centred on these types of rights. The Uber case has recently been heard in the Court of Appeal. Uber argued that its drivers were independent contractors. They could work for other companies, including its direct competitors, and they paid their own expenses, including taxes and the cost of their licences. The company said its role was that of an agency, matching drivers to those who needed a cab.

Both the employment tribunal and EAT judges have already disagreed. The drivers could not set their own fares and were subject to a number of controls. The drivers claimed they had to accept 80 per cent of trips offered, or lose their account status, although this point is disputed by the company. The EAT judge decided that when the drivers accepted trips, they were workers.

Each case will be judged on its particular facts, and employers will need to carefully consider the issue of employment status if they wish to avoid having that decided by an employment tribunal. 

The future

Between February and June 2018 the Government carried out public consultation on whether the options proposed in the Taylor Review of Modern Work Practices could achieve more certainty and clarity for businesses when determining employment status, particularly in relation to the realities of the modern labour market.

The Taylor Review was an independent review carried out by Matthew Taylor Chief Executive of the Royal Society of Arts which considered how employment practices need to change in order to keep pace with modern business models. 

The review’s found that whilst the current employment status framework worked reasonably well for most people as the majority of people were ordinary employees in some cases, the framework does not provide the certainty and clarity individuals and businesses need.

There were a number of recommendations made with a view to improve the employment status framework. This included:

  • Replacing the Government’s minimalistic approach to legislation with a clearer outline of the tests for employment status, setting out the key principles in primary legislation, and using secondary legislation and guidance to provide more detail.
  • Retain the current three-tier approach to employment status as it remained relevant in the modern labour market, but renaming as ‘dependent contractors’ the category of people who are eligible for worker rights but are not employees.
  • Developing the test for the new ‘dependent contractor’ status, control should be of greater importance, with less emphasis placed on the requirement to perform work personally.

No further developments have been reported following the close of consultation and it may be some time before any changes will be made to what is a very complex area of employment law.

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